Price spike means electric retailer goes dark

TOM FOWLER, Copyright 2011 Houston Chronicle

Published
6:30 am CST, Friday, February 11, 2011

More than 7,700 customers of a Dallas-based retail electric company will be transferred to other companies following the company's failure to meet its financial obligations to the state's main grid operator, the Electric Reliability Council of Texas.

Customers of Abacus Resources Energy, most of them residential users in North Texas, will be switched to Spark Energy and Our Energy by Saturday, said Mark Angell, an executive vice president with Abacus.

Customers shouldn't see any changes in rates or disruption of service.

Steep spikes

Angell blamed the company's financial problems on steep spikes in wholesale power prices that hit Texas last week when dozens of power plants suddenly went offline due to cold weather.

The company had entered into financial contracts, called hedges, to protect itself from price swings on some of its power needs, Angell said, but not all of them.

When wholesale prices rose quickly from around $100 per megawatt hour to the market cap of $3,000, the costs to Abacus were too much.

"We didn't want the customers to end up with the Provider of Last Resort," Angell said, referring to the system Texas uses to keep power customers from having their lights turned off when their retailer goes out of business. "Why should the customers get killed on their bill because we messed up and ERCOT messed up?"

So Abacus moved the customers to Spark Energy and Our Energy, with which Abacus had worked in the past, to ensure a smooth transition.

German owner

The company still owes ERCOT about $750,000, Angell said. The company's owner, German businessman Omer Varol, will have to cover that.

Angell said he warned Varol to hedge more of the company's power purchases. "It was like playing Russian roulette with a full revolver," he said.

Abacus' failure is similar to the problem that put about half a dozen small electric retailers out of business in 2008 when wholesale power prices spiked due to congestion on the Texas power grid.

Thousands of customers had to switch to other providers that were charging rates in some cases twice as high as comparable market rates.

The incidents led the Texas Public Utility Commission to increase the financial requirements for retail electric companies. Previously companies only needed to show they had $100,000 in a bank account, but rules now require at least $100 million in equity and a letter of credit for at least $500,000.

Angell said he believes other small power companies in Texas may be in situations similar to Abacus'. It had 7,615 residential customers, 125 small business customers and three medium business customers, using a total of 383 megawatt hours per day.

Most of the customers — 4,318 - were in the North Texas area served by power line operator Oncor, while 1,446 were in Houston-based CenterPoint Energy's region.

Abacus had about 20 employees who will now be out of work, Angell said.